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Diamond Diesel Service, Inc., Auto Repair & Service - Diesel, Oakland, CA

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Back To Diesel Products>Fledgling Biodiesel Industry Fights To Survive

It's an industrial-strength irony — used restaurant fryer oil is valuable enough for environmentalist early-adopters to steal it from outdoor tanks to power their cars, but the companies that collect it and process it can't charge enough to make a profit.

Only two Connecticut companies produce biodiesel fuel commercially. Biodiesel, which has long generated interest in alternative-energy circles, is made from vegetable oil rather than petroleum, and can be used anywhere regular diesel is used — in vehicles' diesel engines or in home heating oil tanks.

"The really cool thing about biodiesel is, unlike ethanol, you don't need to make any changes in your home heating system or your car," said Richard Parnas, a University of Connecticut chemical engineering professor.

The trouble is, biodiesel costs a dollar a gallon more to produce than petroleum diesel, at current prices.

In Connecticut and around the nation, environmentally conscious entrepreneurs are working to turn waste oil into a common part of the fuel mix.

Connecticut has tried to nurture the fledgling industry with direct grants, a new laboratory at UConn and most recently, a mandate to mix biodiesel in with home heating oil. With enough support from state and federal government, the local biodiesel industry may get off the ground — but the most critical federal subsidy has been inconsistent, leaving the industry in a fight for its survival.

Until the end of last year, there was a $1 tax credit from the IRS for every gallon of biodiesel sold, if the product is blended with petroleum diesel — the typical way biodiesel is used.

The disappearance of the subsidy has slammed the brakes on the industry's growth, said Christos Glynos, the owner of the state's largest biodiesel producer, BioPur Inc. in Bethlehem. Although people care about the environment, he said, "we are also Americans, and we look at the bottom line. The reason we use fossil fuels is because it's cheap."

The U.S. Senate has been battling over a bill that would extend unemployment benefits and tax breaks, including the one for biodiesel, and may vote on it next week. The bill already passed the House. If it becomes law, the $1 credit will be applied retroactively to the biodiesel sales during the first half the year.

Until the credit resumes, Glynos said, "A lot of the places have just stopped production until it's economically feasible."

Losing On Every Gallon

Karl Radune, an engineer who founded BioDiesel One in Southington four years ago, has not yet taken a salary from his firm, which employs four others, and he and investors have run through all their capital.

"The business plan was based on the federal incentive," he said.

Glynos and Radune are both selling the biodiesel at a $1 a gallon discount because their customers would not pay $1 more than petro-diesel prices.

"The fuel I sell today, I'm losing money, but I'm gambling that the incentive comes back," Radune said.

Glynos founded BioPur Inc. 2006 and employs 11 people. He aims to position the company so that the government subsidies are irrelevant.

As part of that strategy, last month Glynos bought Grease Guys, a business that collects used oil from restaurants and company cafeterias, cleans it and sells it to BioPur and Biodiesel One. The former owner of Grease Guys, Eric Gordon, founded the firm in 2007 with credit card debt.

Glynos believes vertical integration — owning the product from restaurant parking lot to end user — will allow him to compete on price with petroleum even if subsidies don't come back. The Glynos family restaurant, The Painted Pony, also in Bethlehem, is one of 600 around the state that sell used cooking oil to Grease Guys.

The theft issue is serious — the collection drivers find an empty container at a restaurant at least once a week. Gordon, who intends to remain with BioPur, recently designed an anti-theft container for restaurants to use.

Glynos built a processing facility in Waterbury, part of $2 million he has spent on equipment and facilities, and he is shutting down the former Grease Guys' processing site in Hamden.

He is his own biggest customer, keeping 80 percent of the biodiesel he produces to run a generator that feeds energy back into the electric grid. A U.S. Department of Energy grant of $738,000 covered half the cost of setting up the generator.

Computers and 300 sensors monitor the generator's efficiency. The testing phase, in which the generator only runs four hours a day, is almost done. But even at this stage — because he has a contract to provide peak power to United Illuminating on the hottest 21 days in the summer — the generator is profitable.

And so, Glynos' picturesque, 30-acre goat farm in Litchfield County plays a role in preventing brown-outs on days when air conditioners are running full blast.

Backing A New Industry

Radune received only $83,000 in state grants to establish his plant in Southington, while Greenleaf Biofuels, a distributor in Guilford, received a promise of $1.3 million from the state in 2007 to build a production plant in New Haven Harbor.

Construction has not begun on that $5 million facility.

"Our equity investors pulled back," owner Gus Kellogg said. Also, he added, bankers were not happy that the state money would come only after the plant was finished and running. "Lenders were not feeling secure about that money," he said.

This spring, the state legislature rewrote the grant rules so Greenleaf can get its $1.3 million up front, and also passed a blending mandate. Home heating oil companies must use 2 percent biodiesel — but only if New York, Massachusetts and Rhode Island put similar mandates in place.

Massachusetts already has such a rule. The New York State Assembly has passed a mandate, but it's still under debate in the state senate.

The mandate has another string attached — it comes into play only once 12 million gallons a year of biodiesel is processed in Connecticut. Radune, who now produces 100,000 gallons, says he could make 4 million a year. BioPur makes almost a million, and Greenleaf aims to make 10 million annually.

"I think it's critical to have local demand for the fuel," Kellogg said.

Once that blending mandate is in place, it will increase gradually until it reaches 20 percent. There's a lot of room for growth; Gordon, of Grease Guys, believes only 10 percent of the states' restaurants sell their oil for biodiesel. The rest pay to dispose of it.

The entrepreneurs are unapologetic about government subsidies, saying their industry should be seen in context of the huge support for the oil industry, which includes forgiving royalties on deep water drilling, Naval protection for oil tankers and the U.S. Strategic Petroleum Reserve.

"Without the dollar credit, we're an unsubsidized product competing against a subsidized product," Kellogg said. "It makes very good economic sense to support domestic renewable energy."

Connecticut legislators have agreed, spending $600,000 to set up a biodiesel testing lab at UConn that now employs two chemists and a part-time lab director. The clients who use the tests nearly cover the annual operating costs.

It opened nine months ago, and gives Connecticut clients a discount on fees.

Radune said before the lab opened, he used a lab in Rhode Island and Nevada, and paid about twice as much. "We would spend upwards of $1,400 for a suite of tests," he said — many times a year.

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